Tips on Investing in REITs and Being Successful

Without continual growth, such words as improvement, achievement, and success have no meaning” – Benjamin Franklin.

This quote from Benjamin Franklin dictates a lot of instances from the life of an investor. Where success can only be measured in terms of growth. If a person invests in a certain fund and just expects quick returns to spend on shoes and food, that person will never be what you certainly picture when you think about an investor.

In Singapore, where a prominent part of the population is interested in the market, Real Estate Investment Trust (REITs) have been a beloved investment choice for a lot of money makers. And with the priority given to real estate investment in Singaporean families, REITs have consistently won the public’s trust with its dividend distribution system.

A lot of young and old people invest in REITs in hopes of getting good results, but as Warren Buffet said – “Risk comes from not knowing what you’re doing.” Losing money is never a pretty thing for any investor and complete knowledge of the market that you’re delving into is important to root out a map for your journey to success in investment.

What to Expect From REITs

If you’re a newcomer in the REIT sector, don’t worry, as it is nothing much differentiated from the stock market shares. The major difference that separates the two is the commodity you invest in. When you invest in shares, you put your money on the stock of the company and only expect returns when the company performs. But it is not the case in REITs as they do not operate on their own performance. They utilize the money invested to purchase tangible assets like real estate properties.

Since the REITs invest your money into the development, maintenance, and management of real estate assets, they lease out the properties and distribute a large part of their taxable income to investors as dividends. So when you’re investing in a REIT, there is generally a low-risk factor, given you’ve already done a thorough research of the market conditions for the past and upcoming years. REITs provide a minimum of 5-8% of dividend which is distributed quarterly or every six months. Investors can also sell their shares if the prices go up steeply, and earn heavy profits on returns.

How to Evaluate an asset in REITs

The general price-to-earnings ratio evaluation method of the share market won’t help you in evaluating REITs as they have a distorted record of income because of the revaluation of its investment properties. But REITs have other methods for evaluation such as:

Dividend Yield

The dividend or distribution yield of a REIT is the return on investment (ROI) paid on the price of one of its units. The higher the distribution yield of a REIT unit is, the more dividends you get on the REIT. Buy a number of units and watch them grow. The dividend is an important factor even in the share market and keeps fluctuating, but dividends in REITs are much more secure. This is because of the 90% distribution rule, which means any REIT will have to distribute 90% of its income among its investors as dividends in order to enjoy tax benefits.

Capitalization Rate

The ROI of a property is the capital rate or cap rate of a REIT. A cap rate is determined by dividing the net property income from the original value of the property in view. Cap rates are also measurable on a portfolio level. To make sure that your comparisons do not fool you, you must always compare cap rates among the same kind of REIT trusts. For example, if you’re calculating cap rate for a REIT specializing in hospitality, your next REIT must also be a hospitality trust. This will help you get the best out of each portfolio.

How to Find the Best REIT

REITs have been in the priority list of many investors due to its incomparably high and consistent distribution yield. But out of all the REITs out there, you’d like to choose the one that provides you with a considerable ROI and high yield possibilities along the path.

Borrowings

Just like an individual needs a credit score to be evaluated by the banks and credit card companies, a REIT’s competence is measured by analyzing how it handles its credit. There are various sources of borrowing for a REIT like banks, bonds, fundraising, and offshore sources. If a REIT utilizes various sectors for borrowing, it means that its capacity of managing debts is good. A number of creditors indicate that the trust has a reputation and financial prowess to repay its creditors.

Debt Maturity Profile

Debt maturity profile is the date when the debt comes due. A REIT’s debt maturity profile can be found on the presentations every quarter or the annual report. The due date for a debt repayment means that there will be more interest in the firm’s debt, which can affect your dividend yield. If you see a proper repayment of the REIT’s debts in its past, it shows that the trust has good financial management and will ensure dividend growth.

REITs generally don’t demand a big risk appetite from an investor due to its nature of the business. But when investing in REIT there is always the risk of the price drop of the assets. A rough premonition about the REITs future growth can be made by analyzing its debts, dividends and cap rates. Always clear out any underlying doubt before you confirm your investment on a portfolio.


Tampines Trusted Money Lender – Accredit Moneylender

Looking for the best way to get cash? The best solution is to get a loan from Accredit Moneylender. Keep in touch with Accredit Licensed moneylender to grab the worthy personal loan in Tampines. Accredit does not only emphasize to be a Tampines trusted moneylender but also a legal moneylender that offering loan with the lowest interest rate.

Our staff will treat everybody as a close friend, with the offer you the best consult. In order to give you the best service, we ensure every of our staff is fully understand the rule of regulation of moneylending.

[widget id=”text-11″]

Leave a Comment

Accredit Pte Limited has 4 locations island-wide, to bring our transparent services closer to you.

Contact

Tampines Branch
(+65 6226 2662)
Yishun Branch
(+65 6219 2662)
Hougang Branch
(+65 6245 2662)
Clementi Branch
(+65 6261 2662)

Accredit @ Yishun

Google Reviews

Operating Hours:
Mon to Fri  : 10am – 8pm
Sat and Sun: 10am – 5pm

Accredit @ Tampines

Google Reviews

Operating Hours:
Mon to Fri  : 10am – 8pm
Sat and Sun: 10am – 5pm

Accredit @ Hougang

Google Reviews

Operating Hours:
Mon to Fri  : 10am – 8pm
Sat and Sun: 10am – 5pm

Accredit @ Clementi

Google Reviews

Operating Hours:
Mon to Fri  : 10am – 8pm
Sat and Sun: 10am – 5pm